European equities retreated for a fourth day on Friday as a drop in bank and chemical stocks outweighed a rally in technology companies.
The STOXX Europe 600 dropped 0.3 percent at the close after erasing an earlier rise of 0.6 percent.
Lenders were the second-biggest drag, while a slide in Bayer AG pulled chemical shares lower.
Hawkish comments from central bankers rattled investors this week and sparked a selloff in both equity and bond markets, sending the STOXX 600 into a 2.1 weekly decline.
Still, the index is up 5 percent for the first half of the year.
Bayer fell 4.2 percent after saying it plans to cut its sales and profit forecasts for this year because of unexpectedly high stockpiling in Brazil of its crop-protection products.
Shunned by investors for most of last year and early this year due to political and economic unease, European stocks emerged among the best investments of the first half of this year for US dollar investors, sending portfolio managers scrambling to deepen their exposure to the recovering region.
The Euro STOXX 50 surged 13 percent in US dollar terms in the first half of the year, versus about an 8 percent increase in the S&P 500 Index.
The gauge of the region’s biggest companies — including Siemens AG, Sanofi and Telefonica SA — got a boost from gains in the euro.
In local currency, the index rose 4.6 percent.
Southern European markets have been on a tear in US dollar terms: Spain’s IBEX 35 and Portugal’s PSI 20 climbed 19 percent or more in the first half, Italy’s FTSE MIB rose 16 percent and Greece’s ASE jumped 38 percent.
After burning their fingers in 2015, many investors were reluctant to come back to the region, spooked by this year’s elections in countries including the Netherlands and France.
However, with the right-wing Freedom Party defeated in the Netherlands and the victory of pro-EU Emmanuel Macron in France, the region’s equities have become a “pain trade”: hurting fund managers who have had an underweight holding of the stocks.
“The rise of populism was halted in Europe,” Jeroen Bos, head of equities at NN Investment Partners, wrote in a note on Friday. “Although political risk in the eurozone has not disappeared, we believe that compared to developments in the US, Latin America and several other regions, Europe could now even be classified as relatively stable from a political perspective.”
European equity funds saw net inflows of US$2.4 billion in the week to Thursday, marking a 14th straight week of inflows.
US equity funds saw outflows of US$5.2 billion over the same period, with redemptions seen in seven of the past nine weeks, according to Bank of America-Merrill Lynch strategists, citing EPFR Global data.
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